Debt to Income Ratio
The debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly home loan payment after all your other monthly debts are met.
Understanding the qualifying ratio
Typically, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, please use this Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
Selectplus Lending can answer questions about these ratios and many others. Call us at (818)645-7035.